Cloud Computing In France

Mastère Spécialisé –
Management des Systèmes d’Information et des Technologies
Specialized Master –
Information System and Technology Management

Cloud Computing in France,
A model that will transform companies:
decision mechanisms and impacts

Thesis presented by
Cédric MORA
cedric.mora@gmail.com
Tutor: Gilles MAUFFREY

Perimeter: Platform / Infrastructure as a Service, December 2009
SMB & Early Adopters, France.

Cloud Computing in France – A model that will transform companies
Contents
Context of the study

Thanks

I would like to thank all the persons that have helped me in the process of writing this professional
thesis.

My colleagues who provided me with valuable feedback all along the thesis:

• Lionel Pelletier, with all its experience as a CIO;
• Béatrice Rollet, a great marketing tutor; and
• Isabelle Issert de Braux, for all the legal information.

My family and friends for supporting me:
• André Farand, english proof reader;
• My family; and
• My friends.

My employer for offering me the possibility to work on Cloud Computing and letting me work on this
thesis during the internship:
• Francis Weill.

My tutor from HEC for giving precious feedback and helping prepare this thesis:
• Gilles Mauffrey.

The directors of this HEC/Mines Specialized Master:

• Marie-Hélène Delmond; and
• Robert Mahl.

And, of course all the other persons that I had the occasion to interview:
• Guillaume Plouin, from Octo Technology;
• Henry Peyret, from Forrester; and
• Shirish Srivastava, from HEC.

Cédric Mora
2 December 2009

Contents

Executive Summary

Cédric Mora
3 December 2009

Contents

Cloud Computing offers a new economic model to the IT department: there is a shift from a model
where an organization have to invest a large sum of money for limited resources that are managed
internally, to a model where the organization can rent resources that are managed by a provider and
pay them “for the use”. Platform-as-a-Service and Infrastructure-as-a-Service are two types of
services that enable an organization to outsource resources for the purpose of hosting specific
applications. A structured approach provides an occasion to the reader to look beyond the marketing
speeches, with some insight on the Return on Experience of French organizations:
• PaaS and IaaS can reduce cost but only if the application benefit from the economics
(temporal needs, burst);
• PaaS and IaaS can offer operational benefits for some organizations (SMES for example) but
it is also a way to choose the appropriate service levels and, thus, differentiate the level of
services;
• PaaS and IaaS offer specific new possibilities for the organization, and, for example
accelerate innovation;
• PaaS and IaaS raises issues on operational and strategic levels but the maturity of the
organization is never questioned, while it should be;
• Some French organization may not be interested in the model as it exists now; or
• Private Cloud does not reproduce a real Cloud environment and it is much more
complicated to create than Public Cloud (especially for SMEs).
Those findings are supplemented by decision mechanisms that will help French organizations by
creating the right framework for outsourcing. An organization will be able to determine:

• Whether an application can be outsourced or not with an eligibility matrix (according to the
Cloud strategy, the technical feasibility, the maturity, the risks, the ROI, the criticality, and
the governance);
• What are the needs to be taken into account when calculating the Return on Investment
(which also includes the risks, the type of project and the model of billing) what are the
other possibilities (Managed Service, Colocation, Private Cloud);
• For what usage a PaaS or IaaS service is best suited for (differentiation between new
projects and existing applications);
• How to choose the relationship model with a provider and how to choose this provider
(some providers are not in contact with their customer when other focus on a strategic
partnership); and
• How to take into account the existing environment when making this choice (internal and
external factors could ease or complicate the choice).
French early adopters that will use PaaS and IaaS services will be impacted in all sorts of ways on
their organization. When pushing the scenario a little further, we can see that the shift from the
“controlling an infrastructure” to “controlling a process” have consequences on the strategy,
systems, structure, shared values, style, staff and skills of the organization. This document identify
more specifically:

• How the processes of the IT department are impacted (control of provider services,
automated management);
• What happens to the projects in Cloud Computing;
• The solution given by the IT department to the Business units;
Cédric Mora
4 December 2009

Contents

• The consideration of IT to the strategy;
• The model for contracting with the provider, with Click-wrap contracts or custom-made
contracts;
• The potential new organizational model (Network-centric organization); and
• The new skills and values that must be developed by the employees (control of a process,
collaboration)
French SMEs and early adopters will be able to obtain information that will be very useful on the
processes to implement and consequences of the adoption of Cloud Computing.

Cédric Mora
5 December 2009

Contents

CONTENTS
CONTENTS ........................................................................................................ 6
I. Introduction ............................................................................................. 9
I.1. Context of the study .................................................................................................. 10
I.2. Terminology and perimeter of the study .................................................................. 11
I.3. SMEs (Small and Medium Enterprises) versus Large organizations.......................... 19
I.4. Objectives and construction of the thesis ................................................................. 21
I.5. Methodology of the study ......................................................................................... 24
II. Part 1 - Understanding why organizations need decision mechanisms ....26
II.1. Communication – “Everyone is talking about it” ...................................................... 28
II.2. Cost – “Toward a new economic model” .................................................................. 31
II.2.a. A complicated comparison ............................................................................................ 33
II.2.b. Comparison ................................................................................................................... 35
II.2.c. Platform-as-a-Service .................................................................................................... 37
II.3. Commodity/Product – “What are these services? Operational benefits and new
usages”.................................................................................................................................. 40
II.3.a. Benefits for the infrastructure ...................................................................................... 40
II.3.b. New usages.................................................................................................................... 43
II.3.c. Internal/Private Cloud Computing ................................................................................ 46
II.4. Consumer – “What companies are or could be interested in this new model?” ..... 51
II.4.b. Will SMEs use IaaS and PaaS services? .......................................................................... 51
II.4.c. Concerns regarding Cloud Computing for companies .................................................. 52
II.4.d. Cloud Computing: only for mature companies? ........................................................... 66
II.4.e. SWOT analysis of Cloud Computing for organization interested in the model............. 71
II.4.f. Early adopters................................................................................................................ 71
II.5. Corporation – "Why is it relevant to the strategy of the organization?" .................. 73
II.5.a. Balanced Scorecard ....................................................................................................... 73
II.5.b. Make or buy? ................................................................................................................. 74
II.5.c. Choice of the applications to outsource........................................................................ 77
II.5.d. Cloud Strategy ............................................................................................................... 83
II.6. Channel – “Provider: who, why and how?” .............................................................. 87
II.6.a. Different relations possible ........................................................................................... 88
II.6.b. Choosing the model....................................................................................................... 89

Cédric Mora
6 December 2009

Contents

II.6.c. Benefits and drawbacks of the models ......................................................................... 91
II.6.d. The providers ................................................................................................................. 92
II.6.e. Choosing the right provider........................................................................................... 96
II.6.f. Conclusion ..................................................................................................................... 99
II.7. Circumstances – “The environment” ...................................................................... 100
III. Part 2 – Impact on the organization....................................................... 102
III.1. Strategy .................................................................................................................... 103
III.1.a. Outsourcing is, by definition, a strategic decision ...................................................... 103
III.1.b. No longer restrict customers’ demands ...................................................................... 104
III.1.c. The IT Strategy ............................................................................................................. 104
III.1.d. IT, to influence the Business strategy.......................................................................... 104
III.1.e. Strategy maps .............................................................................................................. 105
III.2. Systems .................................................................................................................... 108
III.2.a. Internal reorganization of the IT department’s processes and management ............ 109
III.2.b. Realization of an application VS Migration of an application ..................................... 115
III.2.c. New Tools .................................................................................................................... 123
III.2.d. Impact of the new billing ............................................................................................. 124
III.2.e. Contracting .................................................................................................................. 125
III.3. Structure .................................................................................................................. 130
III.3.a. A important alignment for the IT department ............................................................ 130
III.3.b. A new organization? .................................................................................................... 132
III.3.c. Impacts on the decision making .................................................................................. 134
III.4. Shared values........................................................................................................... 136
III.5. Style ......................................................................................................................... 137
III.6. Staff .......................................................................................................................... 138
III.7. Skills ......................................................................................................................... 139
IV. Conclusion............................................................................................. 140
V. Bibliography .......................................................................................... 143
VI. Annexes ................................................................................................ 150
I. A growing interest for Cloud Computing – Google Trends ..................................... 151
II. Layers of Cloud Computing services ........................................................................ 152
III. Taxonomy of Cloud Computing ............................................................................... 153

Cédric Mora
7 December 2009

Contents

IV. Nicholas G. Carr’s electricity metaphor ................................................................... 154
V. ITIL - Information Technology Infrastructure Library .............................................. 156
VI. Some Cloud Computing Providers and Consulting Firms ........................................ 157
Infrastructure-as-a-Service providers.......................................................................................... 157
Platform-as-a-Service providers .................................................................................................. 158
Private Cloud Constructors and software firms .......................................................................... 158
Consulting Services ...................................................................................................................... 159
VII. Cloud Software ........................................................................................................ 160

Cédric Mora
8 December 2009

Introduction

I. Introduction

Cédric Mora
9 December 2009

Introduction

I.1. Context of the study
Without a doubt, the biggest IT subject this year 2009 in the media, on the Internet, or with the
professionals, was Cloud Computing [Annex I]. Behind this expression, being adopted by all actors in
this market (vendors or consulting firms), would lie promises of a new economic model to consume
IT resources, and a new technological model which was made possible through the underlying
technologies gaining maturity.

A first definition, proposed by the consulting firm Gartner is:

“A style of computing where scalable and elastic IT-related capabilities are
provided “as-a-service” using internet technologies to multiple external
customers.” (Plummer, et al., 2009)

Another one, submitted by the National Institute of Standards and Technology, has been largely
referred to by all the actors:

“Cloud computing is a model for enabling convenient, on-demand network access to a
shared pool of configurable computing resources (e.g., networks, servers, storage,
applications, and services) that can be rapidly provisioned and released with minimal
management effort or service provider interaction. This cloud model promotes
availability and is composed of five essential characteristics, three service models, and
four deployment models.” (Mell, et al., 2009)

Before detailing those characteristics and models, we will try to identify who is creating this trend.
Numerous articles have been published on this subject, in all types of press (economic, specialized or
generalist) and, every day, we see press releases of companies launching new services related to
Cloud Computing. Below are a number of examples of statements that we can read to get an idea of
the phenomenon:

• « Cloud Computing will be as influential as e-business » (Plummer, et al., 2008)
• « Not only it is faster and more flexible, it is cheaper. […] The emergence of cloud models
radically alters the cost benefit decision » (Financial Times, 2009)
• « IT departments will have little left to do once the bulk of business computing shifts out of
private data centers and into the cloud » (Carr, 2008)

The different players in the Cloud Computing sectors are:

• New entrants: Terremark (USA), Rackspace, GoGrid (USA), LinkByNet (France), Ghandi
(France), etc.
• Major IT Companies: Microsoft, IBM, SUN, etc.
• Telecommunications companies: Orange Business Services (France), COLT Telecom (Europe),
British Telecom, etc.

Cédric Mora
10 December 2009

Introduction
Terminology and perimeter of the study

• Constructors and software providers: VMWare, EMC, Citrix, etc.
• Internet companies: Google (USA), Amazon Web Services (USA), Salesforce (USA), etc.
• Consulting firms: Cap Gemini, Gartner, Forrester, IDC, etc.

Figure 1 - Actors of the Cloud Computing market

These companies are closely monitoring the different studies from all the IT professionals with a view
to getting a grasp of the trends in the market and respond to the client’s needs. Cloud Computing
services market should increase from 46.4 billion in 2008 to 150.1 billion dollars in 2013 (Pring, et al.,
2009 ). Inside these Cloud Computing services can be found different types of offers, and therefore
different types of usage. We will explain later those following concepts that one always encounter
with Cloud Computing: Software-as-a-Service / Platform-as-a-Service / Infrastructure-as-a-Service,
internal / external Cloud (Public / Private / Hybrid Cloud), virtualization, etc. It is important to
underline that the cloud computing market is segmented in different categories; the impact of the
above-mentioned concepts on the companies will differ depending of these categories.

I.2. Terminology and perimeter of the study
The objective of this thesis is not to cover all the questions raised by Cloud Computing services but to
focus on a specific and narrower perimeter. Before explaining what is the chosen perimeter and why
we decided to focus on this one, it is necessary to explain the different underlying notions.

First, we have to come back on the expression “new model transforming companies” and not only a
“new technology”. This is not one new technology called Cloud Computing but multiple existing
technologies which have gained maturity. In a first place, we can refer to three technologies
presented by Nicholas G. Carr (Carr, 2005):

Cédric Mora
11 December 2009

Introduction

• Virtualization, which enables the operation of several logical servers on a single physical
server;
• Grid Computing, which enables the utilization of an infrastructure acting as a single device
composed of shared, distributed, heterogeneous, remote and autonomous hardware
resources; and
• Web Services which enable a communication and data transfer between different
applications and heterogeneous environment using standards. The applications are turned
into modules that can be assembled and disassembled easily (Service-Oriented
Architectures).

We can add other technological factors rendering possible the Cloud Computing model:

• Optic fiber which offers a larger bandwidth limiting latency issues two zones far apart; and
• Consolidation (the average utilization rate of physical servers is very low in every companies
but these servers are still using nearly the same amount of energy and cooling; virtualization
improves these rates because resources are shared) and new machines that are created to
use less energy and need less cooling. This is linked to another big subject: Green IT.

Cloud Computing model emphasizes 5 key characteristics, existing thanks to these technologies, and
explained by the Gartner (Plummer, et al., 2009) and the National Institute of Standards and
Technologies (Mell, et al., 2009):

• A service-oriented technology, where consumer concerns are abstracted from provider
concerns, and that is ready-to-use SERVICE BASED;
• Services scale on-demand to add or remove resources as needed RAPID ELASTICITY AND
SCALABILITY;
• Services share a pool of resources to build economies of scale SHARED RESOURCES;
• Services are tracked with usage metrics to enable the “pay-as-you-go model” PAY PER
USE;
• Services are delivered through use of Web identifiers, standards, formats and protocols and
with an identical access UBIQUITOUS NETWORK ACCESS;

Cloud Computing professionals also agrees on three types of services [annexes II & III]:

Cédric Mora
12 December 2009

Introduction

Figure 2 - Cloud Computing layers (SaaS / PaaS / IaaS)

• Software as a Service (SaaS): The service provided makes use of the provider’s applications
accessible through a client interface, such as a web browser (ex: Gmail). The consumer
doesn’t manage or control the infrastructure, the network, the servers, the operating
system, the storage and cannot add specific development (even if there are limited user-
specific application configuration settings).

o Offers: Billing, Financials, Legal, Sales, Desktop productivity, Human Resources,
Content Management, Backup & Recovery, CRM (Customer Relationship
Management), Document Management, Collaboration Tools, Social Networks.

• Platform as a Service (PaaS): The service provided consists in the deployment of consumer-
created applications on the provider’s infrastructure and the use of programming languages
and tools supported by the platform (ex: Java or Python available on Google App Engine).
The consumer doesn’t manage or control the infrastructure, the network, the servers, the
operating system and the storage but he has control over the deployed applications, and
occasionally application hosting environment configurations.

o Offers: General purpose, Business intelligence, Integration, Development & Testing,
Database.

• Infrastructure as a Service (IaaS): The service provided gives the possibility to rent resources,
such as processing, storage or bandwidth, and allows the consumer to deploy and run any
software (operating systems and/or applications). The consumer doesn’t manage and control
the infrastructure but he controls the operating system, the storage, the deployed
applications, and occasionally networking components (firewall, load balancing). Some
providers offer to manage the application if the latter is not too specific and is compatible
wit the perimeter of their offer.

o Offers: Storage, Compute, Services Management.

Cédric Mora
13 December 2009

Introduction

These different Cloud Computing services have been presented in the configuration called « Public
Cloud » but it is possible to try to recreate some advantages of Cloud Computing on-premises,
creating a Private Cloud to share internal resources. Thus, we are seeing different types of
deployment models in the studies or articles being published by Forrester (Staten, 2009), the NIST
(Mell, et al., 2009) or the Cloud Security Alliance (Hoff, 2009):

• Public Cloud: Infrastructures are shared with a “Pay-as-you-go” model. This off-premise
virtualized infrastructure is easily accessible and can be managed through a portal of the
provider. The provider can make economies of scale: the homogeneous infrastructures are
shared with all the consumers and managed and updated by the Cloud provider. Consumer
can choose the infrastructure they need, and choose all the security elements and the
uptime (SLA). The first Public Cloud, and the most popular one, is Amazon Web Services EC2
(Elastic Compute Cloud) that is linked to other offers, such as Amazon Simple Storage. We
are also seeing an increase number of External Private Clouds offerings (off-premises): this
provides a way for companies to create a logically separated set of virtual machines, a secure
VPN connection to their own networks (Virtual Private Network is a secure tunnel through
the Internet from a corporate network to provider’s servers). It also enables the use of
existing security and management policies. Amazon Virtual Private Cloud is the best-known
offering of External Private Cloud.

Figure 3 - Public Cloud (Open Cloud Manifesto, 2009)

• Private Cloud: internal pool of resources inside the Date Centers of a company. Internal
Private Clouds are sometimes seen as a simple evolution of the classic Information System of
an organization but have some characteristics of Public Clouds (they use the virtualization
and dynamic provisioning). Private Clouds are companies who only want to use services that
are hosted in-house and do not want to share their infrastructure. This type of Cloud respect
the standard process and security policy of the company but doesn’t not offer as much
benefits and flexibility to the CIO: he always have to invest in the hardware and software.
IBM is one of the manufacturers that offer these types of solution for companies who want
to create an Internal Private Cloud.

Cédric Mora
14 December 2009

Introduction

Figure 4 - Private Cloud (Open Cloud Manifesto, 2009)

• Hybrid Cloud: combination of different clouds (for example Public and Private Clouds) that
allow for transitive information exchange and possibly application compatibility and
portability across disparate Cloud service offerings and providers utilizing standard or
proprietary methodologies regardless of ownership or location.

Figure 5 - Hybrid Cloud (Open Cloud Manifesto, 2009)

• Community Cloud: infrastructures, shared by several organizations, support a specific
community that has shared concerns (e.g., mission, security requirements, policy, and
compliance considerations). The US Government and NASA created a community cloud for
all US government agencies. This type of cloud combines two worlds: Public Cloud (different
entities sharing their infrastructure) and Private Cloud (specific organizations use their own
Data Centers and know with whom they share their infrastructure).

Cédric Mora
15 December 2009

Introduction

Figure 6 - Community Cloud (Open Cloud Manifesto, 2009)

The Thesis:

This thesis will discuss of changes and impacts on the Customer (IT departments, organizations) of
Infrastructure-as-a-Service, Platform-as-a-Service and the following types of deployments: Public,
Private and Hybrid.

We didn’t want to include Software-as-a-Service in the perimeter of the thesis because several
studies have been done on the subject in recent years since it is a well-known concept. The global
market of SaaS was 5.04 billion dollars in 2008 and should be 20.2 billion in 2013, which represents
an annual increase of 32% (Plummer, et al., 2009). We can see that a growing number of French
companies are already using, or will soon use, this type of service (Markess International, 2009):
communication (mail, calendar, web meeting, project management, …), human resources (human
resources, finance, e-learning, …), CRM and marketing, etc.

The Platform-as-a-Service market should represent “only” 2.26 billion dollars in 2013 with an annual
increase of 8.3% but the subcategory called “Platform Infrastructure” by Gartner should increase by
50.1% every year.

The most interesting market is the Infrastructure-as-a-Service market which should have an increase
of 53.8% every year, going from 0.96 billion to 8.37 billion dollars. This market creates a significant
amount of discussion and major companies are planning to sell this type of service: the electricity
metaphor is based on this (Carr, 2005). Like electricity, companies may consume IT resources as a
commodity: you pay for what you need every hour to a provider [Annex IV]. The term “Utility
Computing” is often used to define this possibility.

A look at Forrester’s TechRadar confirms that PaaS and IaaS still are in the creation phase but will
certainly bring medium or high value to the organizations.

Cédric Mora
16 December 2009

Introduction

Figure 7 - Forrester's TechRadar for Cloud Computing (Staten, et al., 2009)

Infrastructure-as-a-Service is the only component that will reach its next phase, according to
Forrester, and this will be possible because of the major investments that providers are doing.
Platform-as-a-Service is still interesting because it offers an alternative to IaaS, but that still let an
organization to develop specific applications. These subjects and their impacts in the companies will
be discussed in this thesis.

I could have only referred to the Public deployment model, which raises different questions and
issues of interest. But numerous companies may choose instead to create a Private Cloud and an
examination of this approach will tell us why some companies prefer that their infrastructure stay
on-premises rather than using Public Cloud services.

Outsourced applications have not been, so far, critical applications (even if all applications of a
company tend to be more and more critical) or specific ones (all companies need the same mail or
CRM applications: there is no added value). Outsourcing can be considered for all types of
organization, but some companies will find it easier to use Cloud Computing services than other
companies might. For example, SMEs uses more SaaS than other types of companies (Markess
International, 2009). They have an Information System that is rather young and/or simple and it is
easier for them to migrate to Cloud Computing services such as SaaS (Forrest, et al., 2009). The first

Cédric Mora
17 December 2009

Introduction

hypothesis could be that SMEs will tend, more than larger enterprises, to use all types of services but
we will see that they may not be the largest user of Platform and Infrastructure services. We will try
to identify which companies could be the “Innovators” and “Early Adopters” of the innovation
adoption curve (Rogers, 1962).

SUMMARRY:

The perimeter of the thesis is:

Perimeter
Entities observed Customers of Cloud Computing service
Services model Infrastructure as a Service, Platform as a Service
Deployment model Public Cloud, Private Cloud, Hybrid Cloud
Geographic perimeter France
Companies SMEs and Early Adopters
Focus in the organization IT Department and the relationship with the other
departments

We will not discuss:

• Software-as-a-Service, Green IT, Web 2.0, SOA, Data Center constructions, detailed
explanation on Virtualization;
• Countries outside of France (USA in particular where organization are more advanced);
• Impacts on and strategy of the providers, consulting firms, integrators, constructors and
globally, the IT ecosystem; and
• Advanced Change Management that must be implemented in the organization.

Cédric Mora
18 December 2009

Introduction
SMEs (Small and Medium Enterprises) versus Large organizations

I.3. SMEs (Small and Medium Enterprises) versus
Large organizations
Before detailing how will be constructed the reasoning of the thesis, we will look at the typology of
organizations.
In France, SMEs are organizations that have between 10 and 250 employees (IDATE, 2008). “It
represents a total potential market of more than 3 million businesses and 13 millions of active
workers. These SMEs are not a homogeneous population but consist instead of very varied economic
units. […] [They have] ICT integration logics and digital practices in IT and telecom procurement [that
replicates] this diversity.”
We can identify two types of SMEs:

• Independent SMEs: they only have their internal resources.
• SMEs that belong to a group: they have access to the resources of the parent company.
That occasionally translates into the IT department being more developed and linked to its
parent company IT department.
Large organizations have more than 250 employees.
All these organizations can be divided in two groups:
• Organizations where IT is the core business: Independent Software Vendors, eBusiness
websites;
• Organizations that uses IT to support the business.

These organizations consume IT services as follows (Jacod, 2008):
• IT and telecommunication services represent 5% of SMEs’ purchasing costs and 8% of large
organizations’;
• IT investment of SMEs are divided in services (50%), hardware (34%), and software (16%)
(Nassah, 2006); and
• 65% of large organizations use IT consulting and engineering services, where 42% of SMEs
in a group and 35% of independent SMEs do so.
The document shows that the arbitration between internal and external use depends heavily on the
status of companies. Independent businesses are moving more frequently to an internal solution,
while those who belong to a group are more likely to meet their needs both internally and externally.
In the latter case, the claimant may belong to the same group: 10% of services procurement, made
by companies belonging to a group, are done within the group itself.

The above also illustrates the fact that providing internal solutions for some services may be more
cost effective for smaller SMEs because of fixed transaction costs associated with outsourcing
(covering for example the search for a provider and the costs for the contracts).

Cédric Mora
19 December 2009

Introduction
SMEs (Small and Medium Enterprises) versus Large organizations

Figure 8 - Motivations for IT investment (Nassah, 2006)

We see on the above figure that IT investments for SMEs focus more on compliance than on the
consistency with its environment, which may indicate that IT could be perceived more as cost than
value.
This information will be very helpful for us to understand the environment in which the organizations
work and how Cloud Computing can be consumed by these 3 types of organizations.

Cédric Mora
20 December 2009

Introduction
Objectives and construction of the thesis

I.4. Objectives and construction of the thesis
The main objective of this thesis is to assist organizations in a better understanding of Cloud
Computing services. This “big Cloud” offers the possibility for the organizations to create and host
specific applications, using IT resources that will be managed by a provider, something which appears
both very interesting and dangerous at the same time. I attended numerous conferences from
December 2008 to December 2009 (9 events to be exact) and the reactions of the attendees were
quite simple and complex at the same time. They wanted to understand why this new services could
be interesting for them and how their use could affect them in any manner.

Only a small number of French organizations have already used these services; consequently they are
not completely understood overall.

The objective of this thesis is, essentially, to answer two questions:

• “How will the future organizations will be able to decide if Infrastructure-as-a-Service and
Platform-as-a-Service will be relevant for them, and if so in what will be the Cloud strategy?”
• “What is happening on a day-to-day basis for the organizations and their management?”

To answer these questions, we will divide the thesis in two parts:

(1) Understanding why organizations need decision mechanisms

The understanding is an important phase because organizations are facing something new, and like
for every novelty, some basics questions are raised. Knowing the new environments will help the
organizations establishing the right policies and processes. To globally understand these services, and
see at the same time where organizations will need decision mechanisms, we will use an approach
that is usually implemented in marketing: Marketing Mix. This approach, proposed by Jerome
McCarthy in 1960, is designed to take the right decision when an organization wants to launch a new
product or service. This first version is supplier-focused and has two important characteristics: it
gives an overview of the complete environment for such new services like Cloud Computing and is
very simple to understand, i.e. it only takes a few seconds to do so. A more customer-focused
approach of Marketing Mix was recently proposed by Koichi Shimizu in 2003 (Shimizu, 2003) and
2009 (Shimizu, 2009) and called 7Cs compass model.

The seven Cs are for:

• Communication (or Promotion): a lot of communication is done by multiple actors of Cloud
Computing and customers can be lost.
• Cost (or Price): Why is Cloud Computing an evolution of the way companies consume IT?
What are the principles and benefits of using such a model?
• Commodity (or Product): What are the services and operational benefits of these services?
Why Cloud Computing allows organization to do new things? We will see some Return on
Experience from Early Adopters and that organizations will have to differentiate two
scenarios: the launch of a new project and the migration of an existing application.

Cédric Mora
21 December 2009

Introduction

• Consumer: What are the companies which are, or could be, interested by this model? SMEs
and large organizations are not interested in every service offered by cloud providers
because of the risks entailed by their adoption. We will focus on companies that may find
some benefits from deploying custom applications in the Cloud. The question of the maturity
will be essential.
• Corporation: The choice and definition of the strategy of Cloud Computing services will be
one of the most important parts of the thesis, as it defines what is the global strategy for
using such services in coherence with the organization’s strategy. It also addresses what are
the applications that can be deployed in Public Cloud and what should you keep on-
premises: in other words, how can organization make the right choices?
• Channel (or Place): The choice of the provider is possibly the toughest one: it could be a
partner that will be responsible for some of your applications, potentially critical ones.
Should a company use multiple providers? What will be the role of the provider in the new
organization? What providers should be trusted for what type of customer and/or
applications? Answering these questions is essential to understand the place of the most
important player in this new organization.
• Circumstances: this part will allow us to conclude why and how an organization could use
Cloud Computing services with all the lessons learned, regarding its environment.

Figure 9 - 7Cs compass model

This “retro-marketing” allows me to have a structured approach of what and how organizations will
see the arrival of IaaS and PaaS services.

Cédric Mora
22 December 2009

Introduction

(2) Impacts on the organizations

Some fundamental impacts will happen in a company that uses Cloud Computing services. This part
presents these impacts on day-to-day activities and responsibilities of the IT Department and its
organization. So, what will change and what could be the best practices?

To present the impacts on the organization, I will structure the reasoning 7-S model framework used
by McKinsey because it is a good tool to understand how a company operates. Knowing how a
company operates will help me define the impacts on each factor. I will concentrate more
particularly on the Strategy, Systems and Structure parts, the “hard” elements, because they will
profoundly impact the other parts.

Figure 10 - 7S of McKinsey (Pacale, et al., 1981)

The 7S are for:

• Strategy: What are the impacts on the strategy when it goes from controlling an
infrastructure to controlling a process? What new strategies are possible now?
• Systems: What happen to the processes of the IT department? (ITIL, Build versus Run,
contract management)
• Structure: How can the IT department be aligned with the business strategy? Does a
company need a new organization? What happens to the CIO and the decision making?
• Shared values: Can an organization be still working in silos? A key element will be developed
in the corporation culture
• Style: Does the managers have to behave differently?
• Staff: What happens to the actual employees? New jobs created?
• Skills: What skills does the employees need in this new model?

Cédric Mora
23 December 2009

Introduction
Methodology of the study

I.5. Methodology of the study
Before making the choice of the subject of this thesis, I have consulted several articles and attended
some conferences where Cloud Computing was the main subject. Numerous books and reports have
been published on the subject but few talk about the decision and impacts linked to the choice of
Cloud Computing, and more precisely PaaS and IaaS.

Knowing that I wanted to focus on these aspects, it wasn’t easy to find valuable articles. Cloud
Computing is the most discussed subject of this year and it seems that everybody has something to
say about it. Gartner, Forrester or IDC provides companies with valuable information but it is not
easy to differentiate the reality and the message they want to convey to sell consulting services. I
needed to take factual information with data probing the message. Working for a provider, I was also
able to understand better what a customer can really expect for such types of Cloud services.

In the meantime, I have interviewed experts in different fields as I gained maturity on this subject,
and I also attended a number of conferences, and webinars covering the mater where I had the
occasion to ask various questions:

Interviewee - Organization Position

Henry Peyret – Forrester • Principal Analyst

Lionel Pelletier – COLT • Senior Executive advisor in the consulting team
“Professional Services”
• Ex CIO of PriceWaterhouseCoopers France, Sterling
Software INTL and SemaSchlumberger
• Participated in the adoption of eSCM in France
creating the French association aeSCM and ITIL
certified

Isabelle Issert de Braux - COLT • Lawyer, Head of Legal office, France

Shirish Srivastava - HEC • Teacher on Information Systems and Techology,
specialized in offshoring

Guillaume Plouin – OCTO • Director of the Cloud Computing offering
Technology (Information Systems Consulting firm)
• Author of the book “Cloud Computing et SaaS”, Dunod
2009
• Blogger of “Tendances.IT”, www.tendances.it

Béatrice Rollet - COLT • Head of Marketing of COLT Managed Services France

Cédric Mora
24 December 2009

Introduction

Speaker - Organization Conference Position

Christophe Baroux - Amazon Web Services – “Paris • Regional Sales Manager
Amazon Web Services Amazon Web Services User Southern Europe
Group" - 09/07/09

Laurent Letourmy – Amazon Web Services – “Paris • CTO
Cafe.com Amazon Web Services User
Group" - 09/07/09

Philippe Honigman - Amazon Web Services – “Paris • CEO
FTOPIA Amazon Web Services User
Group" - 09/07/09

Fabrice de Biasio – IDC – “Infrastructure IT & • CIO
Europe Airpost Cloud Computing” – 09/24/09

Karim Bahloul – IDC IDC – “Infrastructure IT & • Senior Consultant
Cloud Computing” – 09/24/09

Régis Mauger – BMC IDC – “Infrastructure IT & • CTO
Software Cloud Computing” – 09/24/09

Laurent Dupuytout – IT Management Partners – • CEO
AVS Consulting “Petit Déjeuner Cloud
Computing” – 12/15/09

Cédric Mora
25 December 2009



II. Part 1 - Understanding why
organizations need decision
mechanisms

Cédric Mora
26 December 2009

Part 1 - Understanding why organizations need decision mechanisms

Before explaining why Cloud Computing is a new consumption model, it is important to explain what
was Information Technology 40 years ago, what it is now and why there is a transformation. We can
roughly split this history in four phases.

The first phase begins in the mid-1950s with what we call “Mainframe Computing”. Mainframes are
in fact computers that were used by large companies for critical applications such as Enterprise
Resource Planning or financial applications (Wikipedia, 2009). A user would login to a simple
terminal, carry out his work remotely on the mainframe, and then logout. The work was saved on the
mainframe and the user could resume his work later from any terminal accessing that mainframe. All
the resources where centralized in large Data Centers.

This centralized architecture phase has been followed by a phase called “Personal Computing” in the
mid-1970s: the Personal Computer was accessible at home. All the computing power and storage
was in the local machine and not distant like it was the case for mainframes. Of course, it was
possible to work anywhere with this computer but it was impossible to access to organization’s data
from anywhere.

Figure 11 - IT investment in the years (Gillett, 2008)

The IT investment to GDP (i) ratio has been constantly growing since the 1950s. Each phase described
is split in two parts: the first one that experienced an increase of the CAGR (ii) in IT investment to
GDP ratio because of innovative technologies or models, and a second one that sees a lower or a
decrease of the CAGR.

A third phase began at the beginning of the 1990s, with the coming of enterprise applications and
internet, which is called “Networked computing”. During that phase were introduced key
technologies and standards that will define the future models.

Since 2008, everybody speaks of a new phase that we will obviously call “Cloud Computing”. We are
seeing again centralized architectures where enterprise servers, applications and data are not hosted
locally but in distant Data Centers. People can once again use and access those applications and data,

Cédric Mora
27 December 2009

Communication – “Everyone is talking about it”

wherever they are, using any type of devices: computers, laptops or mobile telephones. Like Scott
McNealy, founder and CEO of Sun Microsystems, said in the late 1980s “the network is the
computer”. In other words, all the intelligence is not anymore in the local computer.

That is not to say that nothing has changed between mainframes and cloud computing (Atos Origin,
2008). The cost is different: a mainframe belonged and was used by a single large company when a
Cloud Data Center can be used by multiple companies. Cloud Computing is a shared service:
companies can quickly access to cloud services without having to invest in large Data Centers to get a
world class infrastructure. Failure management is also different because hardware used to crash
even with redundant high quality components, whereas cloud computing is built around the
possibility that servers can crash. Failure of one or more servers doesn’t stop the global service:
thanks to virtualization, logical simple servers are launched dynamically and enable business
continuity. Interoperability is becoming possible with web standards (TCP/IP, HTTP, SOAP, REST, etc.)
when mainframes did not offer any possible interoperability. We will talk later of this subject that will
be a key success factor for Cloud Computing adoption. We can add the fact that Rich Interface
Applications are much more user-friendly than were green screen: an organization can easily access
and manage its resources with a user-friendly tool.

II.1. Communication – “Everyone is talking about it”
The previous figure shows that the new “Cloud Computing” phase knows a new growth in IT
investment. Does that mean that a lot of companies are investing or will invest in this new model?
Well, Cloud Computing providers are a key success factor because they invest massively in cloud
services, trying to create new offers and innovating. Every day, companies launch new services that
attract media and customer attention on this subject. We see some providers or consulting firms
organizing conferences, webinars and workshops, and try to give answers to the question: “how
organizations can benefit from these services?” This communication has met the interest of a large
number of SMEs and large organizations. The key success factors that are announced for an early
adoption are:

• The economic crisis: some studies shows that due to the recession, companies needs to
reduce costs and might have an interest in using Cloud Computing services (IDC, 2008).
When a company loose staff and reduce budgets, there are not plenty of solutions to
provide the same level of service to business units and still plan innovation. The cloud model
seems to offer a cheaper way to acquire and use IT and we will explain this new economic
model in the next paragraph.
• The quick wins of Cloud Computing (Linthicum, 2009). In theory, it is possible to quickly
access a service and thus, end-user can also quickly use new services. This simplicity offers
new ways to innovate: organizations can rapidly move from the idea to the implementation
and then stop if it doesn’t work.

CIOs are very attentive to these new services and what they can provide them. CIOs have different
stakes but one of their primary goals is the control of IT expenses (graphic 2). They need to reduce
their budget or allocate it in a different way and this is what the global communication targets.

Cédric Mora
28 December 2009


Graphic 1 - Cost structure of the IT/IS department (Gruau, 2009)

French organizations will have, in their majority, a How will you budget evolve in the
global budget that will decrease (Krawczyk, 2009). next six months?
Moreover, IT is the second department in terms of
budget reduction so French CIOs need to find ways
to spend less money. If we look at the previous
graphic, we can identify some actions that will
enable a CIO to reduce his budget (renegotiate
contracts, stop new projects, use hardware for a
longer period, …) and for a few years, virtualization
technology has been a real solution for a growing
number of organizations. This technology was and
still is massively presented as a good solution by the
media.

First of all, virtualization allows consolidation which
means that average utilization rate of the servers
will be better. It also means that IT departments
reduce their energy consumption because the Graphic 2 - Evolution of the IT budget (Krawczyk,
number of servers decreases. Secondly, the time 2009)
needed to install servers is substantially reduced so that there is a better use of the time by the
teams. But virtualization is much more than that: it creates flexibility, a higher availability and real
solutions to respond quickly to change. Approximately 50% of French companies have already
adopted virtualization. But even if it can procure a good Return on Investment, the upfront payment
for physical servers and the virtualization layer can be rather high. That’s why only 26% of SMEs are
using virtualization when, for large companies, it represents 80% (Bahloul, 2009). Internal Clouds,
created through consolidation of the Data Centre and virtualization, may be difficult to build because
of the requirement in terms of investment.

External Cloud Computing uses virtualization and offers a solution for organization to access to these
benefits (and more) without paying upfront, as we will discuss later in the economic model

Cédric Mora
29 December 2009


paragraph. Thus, Cloud Computing may be an economic response not only to solve some CIO’s issues
but also to be more reactive and innovative. The evolution of the IT infrastructure offers more
possibilities:

Graphic 3 - Maturity of the Infrastructure (Gruau, 2009)

This trend coincides with the evolution of the role of the CIO from a technological perspective, to a
manager that delivers value to the business units. The CIO who was a technical manager and handled
only administrative tasks is of a disappearing sort. Today the CIO shall be aware of the needs of the
organization, whether IT is viewed as a strategic asset or not. The communication around Cloud
Computing incorporates this idea that an organization needs to be more aligned with the business.

Cloud Computing could be a way to focus more on the level of services internal customers need and
how quickly they will get access to it, and not how it works or what are the technical difficulties due
to flexibility issues. Of course, one of the goals is to spend less money on recurrent - “Run the
business” – and more on innovation – “Change the business”. Organizations currently spend 20% of
their IT budget on innovation; the spending level could reach 40% in 2012 with this adoption (Gruau,
2009).

From what I have seen during the preparation of the thesis, all the companies communicating on
Infrastructure-as-a-Service and Platform-as-a-Service are, in their vast majority, presenting primarily
the benefits and only mentioning a few risks. It is becoming difficult to understand what are the real
differences between two services, offered by two different companies, and how either set of services
could be relevant for an organization. Some are using this trend to sell services which are already
being used, with the word “Cloud" labeled on it. In the next parts, we will try to understand exactly
what companies can expect from Cloud services and if it is possible to get the benefits presented.

Cédric Mora
30 December 2009

Cost – “Toward a new economic model”

II.2. Cost – “Toward a new economic model”
Cloud Computing brings a new economic model that attracts different types of directors in an
organization (CIOs, CFOs and CEOs). We will try to establish if it is something that may lead to Cloud
Computing adoption.

With External Cloud Computing, you pay for a service. It means you pay for an ensemble of
operations that you don’t have to do anymore in-house. Usually, when you run an application in-
house, you need: a Data Centre, where you will have a managed infrastructure, the operating system
and its monitoring, and all the people supervising the ensemble and doing the upgrades. Then, you
have the application running on top with all the maintenance, and you need to deploy the system
across your organization and train all the users in the organization. In other words, organizations
have to pay for everything that makes the ensemble works. In this classic model, organizations need
specialized resources in-house that have a lot of knowledge in different areas of IT.

Outsourcing and maintenance has been around for years in software development and companies
have learned to pay for this type of service. Cloud model goes beyond by outsourcing the entire
infrastructure and its management. In an Infrastructure-as-a-Service model, a customer pays for all
the management of its infrastructure (there is only one invoice), letting him handle only the
applicative layer, maybe his only business value (sometimes, the provider can also manage some of
those specific applications). With Platform-as-a-Service, the organization pays at the same for
middleware and other architectural applications. For the information, in a Software-as-a-Service
model, a customer pays for the entire application: he only takes care of the deployment and the
training in his organization.

Figure 12 - Customers pay for a service (Rollet, 2009)

Cédric Mora
31 December 2009


We can understand why this type of service could be easier to manage for a CIO. When Small and
Medium Businesses, that do not have a high amount of IT skills in-house, only need to pay for a
service, this translates in higher benefits, something we will explain later. This is one of the three
business benefits underlined by Forrester (Schadler, 2008): “Focus: Outsource non-core
competencies to a service provider. Using a cloud-based service provider can free up your IT staff to
focus on things that drive the business: customer service application; Web site service innovation, not
just another software upgrade.” The more you go down in the layers (from Saas to IaaS), the more
you need non-core competencies.

We will address more precisely below the concept of Infrastructure-as-a-Service.

The second difference with a more traditional model is that it is a “pay-as-you-go” service. What it
means, is that you don’t need an initial investment (CAPEX – for CAPital EXpenditure) but you only
pay monthly for what you use month after month (OPEX – for OPerational EXpenditure).

When you want to use a new application, the first thing you do is try to scale the infrastructure up to
the predicted demand (whether it is a business application that you sell to a customer or an
application that is for internal use).

With a traditional infrastructure, you need to do an analysis and which shall be very precise: if you
don’t have enough resources, your customers (business directions or customers) won’t be able to
use the service, whereas, if you over-provision, you will spend a lot of money on hardware you won’t
need. Very often, the solution is that you foresee the infrastructure you will need in a few months,
hoping that you made a good estimation and that you will have time then to scale it up if needed.

With an elastic infrastructure, you don’t need to predict the demand: you just scale up or down
every time you need to do so, which means that you pay for your actual use instead of provisionning
for peak.

Figure 13 - The infrastructure follows the actual demand
Cédric Mora
32 December 2009


We can see the 4 decisive steps on figure 2. The first step (1) shows that with elastic infrastructure,
the CAPEX disappears: you use a service, you don’t make an investment. This is the second benefits
that underline Forrester: “Funding: Pay as you go rather than spend upfront. Instead of paying
upfront for hardware, software, and consultants to set up and run your [service], you pay a [service
provider as you go]. This lowers the cost of launching new IT projects, which speeds innovation and
increases the number of projects that can be funded.” The main idea behind this is that it is easier to
speak with a CFO when he won’t have to make a huge investment and that he can quickly stop the
service in case of failure.

The second step (2) shows that when you have a growth in your activity, you must follow the
predicted demand if you have a traditional infrastructure. If it was a temporary increase (example :
before a crisis), you may have just made a re-investment for no practical purpose. As we saw before,
with an elastic infrastructure, it is still possible to scale your infrastructure down (3).

The fourth step (4) is a more threatening one: you lose customers or you don’t answer to business
needs because you didn’t rescale your infrastructure.

This scalability, created by Cloud Computing, offers significant financial benefits and reduces the
risks. Before Cloud Computing was available, the financial risk was taken upfront with no guarantee
on the return; now, financial risk is taken monthly and matches the return. Forrester’s third benefit is
more focused on delivery: ”Speed: Accelerate a project rollout. In one project, a financial services
company moved its employee portal to a cloud-based service provider and launched it in 60 days.
After 18 months, another firm is still building the employee portal in the corporate data center. The
difference? The cloud-based solution started with a prebuilt foundation.”

II.2.a. A complicated comparison
This difference between two models doesn’t really reflect the reality, as companies do not have only
two choices (in-house or cloud) but more. For several years, companies have already been using
different types of offers to manage their infrastructure. Between on-premise installation and Cloud
Computing, you can identify two more types:

• Colocation services: a company can put its own infrastructure in a provider’s datacenter that
authorizes colocation hosting. The company pays for the physical space, a basic supervision
and/or limited activities like backup but still have physical access to the hardware for the
management with its own employees. The benefit is that the company gets access to a
business class services without actually paying the expensive bandwidth and infrastructure
costs of developing its own datacenter.
• Traditional outsourcing (managed services): these IT providers offer defined set of services
to their clients: they monitor their client's IT infrastructure (shared or dedicated) and basic
applications and resolve any issues that arise within it. The main benefit for a customer is
that costs are known for management (provider’s employees manage the infrastructure)
with fixed price contracts. These providers may offer leasing solution, thus proposing a
service for which a customer doesn’t have to pay upfront all the hardware.

Cédric Mora
33 December 2009


Colocation services offer an economy of scale by sharing a Data Center, whereas traditional
outsourcing offers an economy of skill by outsourcing the management of client’s platforms. Cloud
Computing combines best of both solutions, as shown in the following matrix:

Figure 14 - Economies of scale and skill drive cloud computing (Schadler, 2008)

Considering these different solutions, some questions are raised: does a customer pay less when he
chooses a Cloud Computing service? Can he make a real Return On Investment (ROI)?

A first answer was given in a study called “Above the Clouds: A Berkeley view of Cloud Computing”
(Armbrust, et al., 2009) which propose an equation comparing a Cloud Computing solution to a fixed-
capacity Data Center solution (hypothesis: customer’s revenue is proportional to the total number of
users-hours):

.

The left-hand side represents the Cloud Computing model (a usage-based pricing, by the hour): it
multiplies the number of users-hours by the net revenue realized per user-hour minus the cost of
paying Cloud Computing per user-hour. The right-hand side performs the same calculation for a
fixed-capacity datacenter by factoring in the average utilization including so nonpeak workloads (it
corresponds to the three other types: colocation, on-premise and traditional outsourcing). The
usable capacity of a datacenter is between 0.6 and 0.8, and it always needs overprovisioning when a
cloud vendor factor it in . The study says that “whichever side is greater represents the
opportunity for higher profit”.

This equation, rather simple, doesn’t really reflect the complexity of the question “Should I move to
the cloud?” It shows that, with the average utilization rate being lower than 1.0, the cost of your
infrastructure deployed in the cloud should be less.

Cédric Mora
34 December 2009


II.2.b. Comparison
Chris Fleck, conference speaker on Cloud Computing, compared the reality of infrastructure cost of
different solutions (Fleck, 2008):

Purchase – on Premise Purchase – at Colo Amazon Cloud

Type Price ($) Type Price ($) 1 year 24/7 - 1 year 24/7 - 1 month – 24%
100% 24% use use

• 5 Quad-Core • 15,000 • Quad-Core • 15,000 24x365x5 40 hours x 52 40 hours x 4.3
Servers Servers Amazon EC2 weeks weeks
(5x3,000 each) (5x3,000 ($.80 per high
• 1/2 Rack + each) CPU Server
• 750 • 750 instance hour)
Gigabit Switch • 1/2 Rack +
Gigabit
Switch
Total 15,750 Total 15,750
Hardware cost Hardware
cost

• Annual • 5,800 • Annual • 5,800
amortized cost, amortized
5% over 3 cost
years
• 0
• Assuming no • Colo fee's;
incremental 1/2 Rack +
• 8,000
real estate cost power +
• Annual power bandwidth
& AC cost • 2,000
Total annual cost 7,800 Total annual 13,800 35,040 8,320 688
on premise cost at Colo

Table 1 – Comparing costs

One may think that the use of Amazon Cloud Services is quite expensive. But it misses an important
cost for the first two types: the management cost of the servers. I believe that calculating the ROI of
an application will be very difficult because the management for the different types of the service is
not the same:

• On premises, you may not have employees monitoring the servers during the night, the
weekend or during holydays;
• At colocation, the servers only have a basic supervision, so employees may have to go to the
facilities to handle a problem; and
• With a Cloud solution, your servers are fully managed and you have inherent redundancy.
But, you must also have employees that regularly monitor and manage your cloud servers.

It must be emphasized that it is rather difficult to compare these costs, not only because the service
provided is not the same, but the underlying risks are also very different. A realistic comparison must
take into account:

Cédric Mora
35 December 2009


• The cost of the infrastructure: hardware and all infrastructure elements;
• The cost of the software: licenses, trainings, new tools;
• The cost of all the employees that are working on these infrastructures and applications:
from operation to monitoring, and from design to quality management, etc.;
• The cost of risk: what are the potential risks and cost associated (risk to do / risk to not do)?;
• The type of project: is it a new project, is it a migration? How will it work with the existing
infrastructure;
• The model of billing.

Any Return on Investment that does not integrate those parameters will be biased.

In any case, if an organization has a temporary increased activity, the only solution, where an
organization do not have to pay for a definitive additional server, is IaaS.

From another perspective, a customer must try to plan the number of servers that will be used
during the year even if it is difficult because of the new economic model itself: “You pay for what you
use” and do not forecast.

Karim Bahloul, senior consultant for IDC, talks about the new issue regarding
infrastructure management.

“With virtualization [and Infrastructure as a Service], it is easier to access to new servers. But
when you can quickly add new servers, the lifecycle may easily be not respected. You may pay for
more servers than what you really need (and the licenses that you may use on these servers) and
if there isn’t a real management with more automation tools, the price that companies pay may
be difficult to predict. The pay-as-you-go model can create some surprises.”

Chris Fleck has selected the provider Amazon Web Services (Elastic Compute Cloud – EC2) for his
comparison, and obviously the result would have been different with any other provider. Depending
on the provider, you may have to pay more for the storage, or the bandwidth (data in / data out).
Also the Quality of Service is not the same: every one of the providers has specificities so that it
becomes difficult to make a quick comparison to determine whether you will pay more - or less - at
the end with any of the solutions being offered (on-premise, colocation, managed services, all cloud
providers, …), except if you realize a real case-study on a specific application.

This complexity in the offers shows that it goes beyond a simple calculation and there are a number
of hidden costs in Cloud Computing: for migration, monitoring, having new tools to manage the new
virtualized environment (with trainings), growth of costs over time, etc.

But when a company wants to grow its IT infrastructure from zero, it has 2 options:

• Build it on-premise and own or lease the equipment; or
• Outsource the infrastructure (colocation, managed services, cloud services).

Cédric Mora
36 December 2009


New SMEs will find it difficult to build an IT infrastructure on-premise and, an up-front for a
colocation/managed services approach comes with a heavy burden in the current economic
environment. Even if the company can secure the necessary credit, the cost of the loan makes it
much more expensive over three years. SMEs will prefer to pay for resources they really use, and not
put up with the inherent complexity of the management of the infrastructure.

Existing companies that already have a complex IT infrastructure may have more hesitations if they
only look at the financial Return on Investment. But, as mentioned before, Forrester presents other
financial advantages for the CFO (Schadler, 2008) such as: “the balance sheet doesn’t carry an ever-
depreciating capital asset of hardware and software” or “financial risk is taken monthly and is
matched to return”.

Companies will have more benefits if their activities are seasonal (meaning that, very often, a
company needs more resources because of a temporary growth in the activity, for example during
promotion periods) or if they have an average utilization rate of their servers that is low. But what
happens if it is not the case? Even Amazon Web Services is beginning to offer services for a flat
monthly fee as opposed to a utility billing basis.

The fact that you may pay less with Cloud Computing services (ROI) is only one factor which has to be
weighed against all other benefits: pay-as-you-go (which also means stop-when-you-want), begin
simple and get flexibility. We will see the other benefits in the next part.

Laurent Letourmy, CTO of the French company Cafe.com, uses Amazon Web Services
to host the Facebook game called “IsCool” (5.5 million users) on 40 servers.

“I do not have a Data Center and certainly do not have employees that could manage the servers.
I had 2 solutions: use Cloud Computing services or Managed Services. I choose Amazon Web
Services because of its flexibility and the hardware abstraction: I can easily add or decrease the
number of servers. But the monthly price would have been nearly the same…”

II.2.c. Platform-as-a-Service
Some recent case studies show that Platform-as-a-Service may offer more savings and a better
Return on Investment than IaaS, under precise circumstances. In particular, staff-related savings
could be important during the application development period if an organization develops a new
application/system. This white paper, published by IDC (Perry, et al., 2009) details the costs of
application development for companies that uses traditional application development and
companies that uses SalesForce’s Force.com (a PaaS service). At every step of the application
development (design, model, coding, configure, assembly and integration, unit and system testing
and deployment), the 10 companies considered realized substantial benefits, thus decreasing the
overall application development cost savings by 76%.

Cédric Mora
37 December 2009


Laurent Dupuytout, CEO of the French consulting firm AVS Consulting, expert in
Cloud Computing solutions and realized integrations on PaaS platforms.

“A tender was done early this summer by a French group with international dimension. The
goal was to create a specific application to strengthen the IT governance process:
- Have the possibility to link each IT applications to one of the 20 countries where the
organization is located, link it to a domain or a function, and map it in the Information
System. Describe what are the areas of intervention, the subdomain, the providers who
manage the applications, the costs of maintenance, the criticality and the number of users,
and compare the results with those obtained in other countries. Being able to link projects
and make them evolve. Validate that the projects are consistent with the business strategy.
Compare the projects with the trends and other projects, etc.
- Creation of good ergonomics for users and administrators (i.e. user-friendly).

Ei Technologies responded to this tender with two solutions from its subsidiaries:
- AVS Consulting, with Salesforce’s Force.com PaaS service:
- Technologies: Force.com technologies (configurable data model, configurable user
interface, workflow models, models of reporting, do specific developments and integration);
- Implementation duration (consulting, analysis, integration): 1.5 months, 81 man
days.

- 1Genia, with a traditional solution:
- Technologies: J2EE development, BIRT Java reporting tool framework, Linux OS,
Tomcat servers, any DB;
- Implementation duration (consulting, analysis, integration): 4 months, 230 man days.

For the Total Cost of Ownership, the results where the following:
- Less than 3 years: advantage for the PaaS solution because the licenses are paid on a
subscription basis, and therefore there is no significant CAPEX, whereas the second solution
needs 230 man days to start;
- More than 3 years: balance between the two solutions (if we do not take into account the
ease of scalability).
An integrator will necessarily be more attracted by the second solution (occupation of the
teams) but, of course, the first solution was chosen.”

When dealing with the costs of Cloud Computing, we understand that these are different depending
on the scenarios:

• Is it a new project?
o The development of this application might cost less using PaaS services because
some tools are already integrated, making it easier to test, develop, deploy, etc. Staff
costs regarding the creation of a new application from the design to the deployment

Cédric Mora
38 December 2009


of the project are reduced because it is designed to work in the environment. We can
imagine that the experience curve effects might play a big role in reducing the costs
after the trainings. Development/Test, using IaaS services, has a main impact: the
resources needed for these steps are paid for a short period of time.
o Does the management of the infrastructure and platforms underlying the
applications will cost less on this environment (activity peaks, etc.)?
o Does the addition of new features will be simpler and, thus, less expensive?
• Is it an existing application that we want to migrate in the Cloud?
o What is the cost of the migration? Migration to PaaS services indicates major
developments because there are specific frameworks whereas the use of IaaS will
less impact the application.
o Will the application benefit from the new economics?

Figure 15 - Costs: New Project vs Existing Application; PaaS vs IaaS vs Internal IT

The main idea behind this new economic model is that companies can now consume IT infrastructure
more like a utility service, gaining new advantages. It doesn’t mean that everything is better with this
solution, and companies must create case studies and benchmark all the solutions before using these
types of services whether they are SMEs or large organizations.

Cédric Mora
39 December 2009

Commodity/Product – “What are these services? Operational benefits and new usages”

II.3. Commodity/Product – “What are these
services? Operational benefits and new usages”
We have seen that the new economic model, offering “pay-as-you-go” solutions, may provide
financial benefits for some organizations. We will develop below what are those services, and more
precisely what are the operational benefits that organizations can expect.

II.3.a. Benefits for the infrastructure
As we mentioned already, External Cloud Computing may offer access to a massively redundant
infrastructure and this, from the time of first payment. An organization that does not have sufficient
financial or human resources and, moreover, has not yet installed the processes to manage such an
infrastructure will be able to access a better and clearer uptime and availability - for example:
Amazon EC2 offers a 99.95% uptime (Amazon Web Services, 2009). That organization will also be
able to obtain different services, such as prebuilt foundation, provisioning or upgrades, and also have
access to a 24/7 customer support providing an immediate response to emergency situations.
Obviously, the latter is very difficult to create, either in SMEs or large enterprises. Depending on the
SLA needed for an application, the organization will have to choose whether Cloud services are
suitable or not.

The fact that companies do not own the infrastructure offers other benefits, such as space for
additional servers or the management of electricity and air-conditioning. Virtually, they can access
an infinite amount of resources.

I will present more extensively the three major benefits with a Return on Experience from various
organizations.

Figure 16 - 3 major benefits for the organization on an operational level

Cédric Mora
40 December 2009

Commodity/Product – “What are these services? Operational benefits and new usages”

Stop planning and doing tasks that does not create value with “Storage-as-a-
Service”
The best example for this is storage and archiving which, as Infrastructure services, can now be also
consumed with a “pay-as-you-go-model”. In a study carried out by Forrester on the growth of data
volume (Yuhanna, 2007), the 150 senior IT executives being surveyed worldwide indicated that:

• The volume of enterprise data is growing at 50% per annum, driven by a new-generation of
applications;
• There is a strong demand to retain data for business analytics, and trend analysis; and
• Data retention for legal requirements had increased (Winter, 2008).

This growth is causing serious performance and storage challenges. With 85% of the data production
comprised of inactive records, and 64% of the respondents saying that their enterprises have over
half of their databases residing on tier one storage solutions (iii), the costs of holding inactive data in
an environment are significant and unnecessary. A storage solution in the cloud could offer a way for
organizations to store non-critical data. Here also, companies get a clear SLA that they can match
with different types of use (legal archiving, data accessed on a more frequent basis, etc.). They don’t
need to order, and wait for, hardware storage to be accessible: the thin provisioning can be done
easily with cloud storage solutions and the installation and configuration tasks are now done by the
provider.

We do not find many organizations that publicly acknowledge that they use cloud services, but some
case studies of internet-based companies have been released. For example, 37Signals, a company
that is a developer and provider of business and personal productivity web applications, hosts its
data on Amazon Simple Storage Service (Amazon Web Services, 2009). More than for the cost
reduction entailed by the service, 37Signals has been attracted by such a service because of its ability
to deliver on a complicated task: “the […] time associated with maintaining a 1 terabyte file server
with full backups and zero downtime are significant when you’re living off managed hosting”. This
organization was facing the challenge of managing a booming issue, and storage-as-a-service
allowed them not to focus on non-core activities: “[…] turning up our storage offerings no longer
involves planning how to extend our cluster or deal with huge backups”.

Get access to enterprise class services with Infrastructure-as-a-Service
SMEs do not always have the resources to pay for an infrastructure that offer security, higher
availability and 24/7 management capability. One of the operational benefits of Cloud Computing is
to enable SMEs to obtain a higher level of operations service than the one they could normally
afford.

A French B2B company called Ftopia offers a secured and easy way to share documents on the web
between professionals. It offers an alternative to documents shared by mail or accessible by FTP, that
users may not find user-friendly. That company has already one hundred customers, including HEC
that uses the service to host the documents of students that create companies in the “Incubateur
HEC”.

Cédric Mora
41 December 2009

Cloud Computing In France

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